Analysis: US industrial gas demand levels off amid uncertain timeline to recovery

Virus-related gas-demand destruction among US industrials appears to be bottoming out this month as slowing economic activity impacting their businesses levels off, but certain sector-specific risks remain.

Through mid-May, modeled industrial gas demand has averaged about 20.2 Bcf/d – down nearly 9% or about 1.9 Bcf/d compared to levels in May 2019, data from S&P Global Platts Analytics showed.

As aggregate industrial gas demand levels out around 20 Bcf/d, historical data from the Great Recession of 2008 suggests that a nascent recovery in demand could be underway by later this summer.

Using historical data as a guide, a recent forecast from Platts Analytics shows US industrials adding some 500 MMcf/d in additional gas demand each quarter starting in Q3 and continuing through Q1 2020.

An important difference between the current economic downturn and the one experienced just over a decade ago, though, relates to short-term demand destruction for certain goods and service. While some industrials could see a quicker rebound compared to previous recessions, others are likely to experience a long and bumpier road to recovery.

REFINERIES, CHEMICALS

Beginning in mid-March, gas demand from the hard-hit refining sector slowed amid a precipitous drop in demand for fuels like gasoline, diesel, kerosene and jet fuel.

Many US refiners cut operating rates to 70% across their systems, including Phillips 66 and PBF Energy. On respective first-quarter earnings calls, Valero said that it had shuttered an FCC unit at its St. Charles refinery, while Marathon Petroleum idled its entire refinery operation in Martinez, California.

As lockdown across the US ease, an anticipated uptick in vehicular gasoline and diesel demand, and a slower recovery from the aviation sector could see refinery gas demand recover comparatively quickly from a sample-estimated 6% decline since mid-March, compared with year-ago levels.

According to Platts Analytics, gas demand from the chemicals sector could follow a similar, relatively rapid recovery as global supply-demand imbalances related to the pandemic ease. A similar timeline to the 2008 financial crisis would see roughly half of the sector's lost gas demand recovered by autumn.

PRIMARY METALS

In the primary metals sector, a downturn similar in trajectory to the Great Recession would imply that more gas-demand destruction awaits in the months ahead as product demand for steel and iron ore wanes amid a slowdown in construction and infrastructure development.

In fact, by the second to third month of the 2008 downturn, only about 50% of the total gas demand lost in primary metals was yet realized. This time around, Platts Analytics expects that the metals sector may see demand plateau during the summer months, followed by another downturn this fall – potentially exacerbated by another outbreak of the coronavirus.

Other factors, of course, could influence the trajectory of the current downturn. In 2008, ArcelorMittal, among the largest steel producers globally, cut production about 45% in the face of plummeting global demand. Earnings and investor presentations from first-quarter suggest smaller production cuts have been made among primary metals producers during the current downturn – at least for now.